Cisco Systems, Inc.

Welcome to Cisco's first quarter fiscal year 2025 financial results conference call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now I would like to introduce Sammy Badri, head of investor relations. Sir, you may begin.

Good afternoon, everyone. This is Sammy Badri, Cisco's head of investor relations, joined by Chuck Robbins, our chair and CEO, and Scott Herron, our CFO. Cisco's earnings press release and supplemental information, including GAAP to non-GAAP reconciliations, are available on our Investor Relations website. Following this call, we will also make the recorded webcast and slides available on the website. Throughout today's call, we'll be referencing both GAAP and non-GAAP financial results. We will discuss product results in terms of revenue and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons will be made on a year-over-year basis. Please note that our discussions today will include forward-looking statements, including our guidance for the second quarter and fiscal year 2025. These statements are subject to risks and uncertainties detailed in our SEC filings, particularly our most recent 10-K report, which identifies important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. Now, I'll turn it over to Chuck.

Thanks, Sammy, and thank you all for joining us today. Cisco delivered a strong start to fiscal 25, delivering $13.8 billion in revenue for the first quarter, coming in at the high end of our guidance range. This was supported by solid growth in annualized recurring revenue, remaining performance obligations, and subscription revenue, which now accounts for 57% of our total revenue. The strength of our recurring revenue streams is helping to fuel our profitability. Non-GAAP EPS of 91 cents exceeded the high end of our guidance range, driven by the highest non-GAAP gross margin we have seen in more than 20 years, which was further enhanced by Splunk. The combination of Cisco and Splunk and our team's great execution are both driving our strong operating leverage. The strength of our operating performance and free cash flow in Q1 fueled a return of $3.6 billion in value to our shareholders through share repurchases and cash dividends, delivering on our commitment to consistent capital returns. Building on the growing demand we saw at the end of fiscal year 24, product orders grew 20% year-over-year in Q1 and were up 9% organically. This is an acceleration of the 14% product order growth we saw just three months ago and is a clear sign of normalizing demand for Cisco's innovation. Now let me share some details on our first quarter, starting with the demand environment. Enterprise product orders were up 33%, driven by particularly strong performance in the Americas and EMEA across a broad range of customers. We saw continued strong momentum in service provider and cloud, with product orders up 28%, driven by triple-digit growth in web scale. In Q1, our web scale customers placed AI infrastructure orders in excess of $300 million. Our AI pipeline continues to be strong, we have earned more design wins, and remain confident that we will exceed our target of $1 billion of AI orders this fiscal year from web scale customers. After a very strong Q4 last quarter, public sector orders were up 2% year-over-year in Q1. Federal spending in the U.S. was lower year-over-year due to continuing resolutions discussions, the impact of the Fiscal Responsibility Act, and the diversion of funds within U.S. Federal. It's important to note that we believe the deals we are working on with U.S. Federal customers are simply delayed, not lost. In both EMEA and APJC, year-over-year public sector order growth was strong. Now let me share some data on demand through the lens of our products to provide some incremental color. Our networking portfolio saw double-digit product order growth overall, driven by switching, wireless, and internet infrastructure. Looking at data center switching in particular, we have seen three consecutive quarters of double-digit order growth and an acceleration from Q4 into Q1. This shows our competitive strength in this key market and the power of our Nexus brand in the build-out of private cloud infrastructure by our customers. We expect this momentum to continue as customers are showing significant interest in our 400-gig and 800-gig switches based on silicon-1. Security orders more than doubled year-over-year, driven by the advanced threat intelligence capabilities of Splunk. Excluding Splunk, growth in security product orders was driven by our renewed security strategy and new product pipeline, which continues to be well received by customers and analysts. We continue to see momentum around our new security products like XDR, Secure Access, and Multi-Cloud Defense, with now over 1,000 customers deploying these products thus far. In Q1, we had a marquee win for over 75,000 cloud security seats with a multinational IT services and consultancy company. The customer largely replaced an SSE competitor with our solution and moved from planning to implementation in 120 days. highlighting how fast our teams can implement our solutions at scale. We also booked our first seven-figure HyperShield deal in Q1. Collaboration product orders grew double digits again, driven by demand for devices and our cloud WebEx suite. Finally, in observability, orders were up high single digits, driven by our network assurance solution, ThousandEyes, and Splunk observability. I'd also like to highlight some of the progress we've made integrating Splunk. We now have a dozen updated data integrations between Cisco and Splunk across our security and networking portfolio, including Secure Firewall, Catalyst Center, SD-WAN, and ICE. We continue our joint selling motions between Cisco and Splunk, including Cisco Secure Network Analytics and XDR, alongside Splunk's SIEM, offering enhanced capabilities to the Security Operations Center. We also continue to build our market-leading observability solutions to accelerate full-stack observability for the enterprise. Overall, our Q1 results highlight continued strong demand for Cisco technologies driven by the need for modern resilient networks as AI begins to scale. Findings from our new global AI partner study show that IT partners around the world are anticipating a transformative wave of AI technology demand driven by infrastructure, cybersecurity, and customer experience, which they expect to fuel the majority of their revenue over the next four to five years. With the breadth of our portfolio, we are uniquely positioned to capitalize on this AI technology demand as customers are investing in their critical infrastructure to prepare for AI. In fact, there are three distinct but connected pillars to the AI networking opportunity for Cisco, which we have outlined on a slide as part of our quarterly materials. First, AI training infrastructure for web-scale customers. AI networks demand scalable, programmable, low-power switches with advanced load balancing and observability. These characteristics in our products are driving hyperscalers to deploy the Cisco 8000 with Cisco's Silicon 1 G200 for maximum power efficiency in their back-end AI training networks. As further proof, we also want a new Superspine AI networking use case with one of our web-scale customers this quarter. Second, AI network connectivity. This quarter, we booked further platform sales with global enterprise customers who are leveraging our technology platforms to modernize and automate their network operations to prepare for large-scale connectivity to AI applications. Our technology platforms across switching, routing, security, and observability will help enable our customers by leveraging cutting-edge innovations like AI-powered robotics and unmatched supply chain visibility. Third, AI network inference and enterprise clouds. Most of the CIOs and technology leaders we talk to say that their organizations are planning full gen AI adoption within the next two years. Yet only 13% of organizations say their infrastructure is ready for AI today, according to the Cisco AI Readiness Index. To help our customers prepare, we have announced two new additions to our data center infrastructure portfolio. a new NVIDIA-based AI server, and AI pods, including NVIDIA's AI Enterprise Cloud Native software platform, and managed through Cisco Intersight to simplify and de-risk AI infrastructure deployment. Our new AI server is expected to begin shipping next month, and our AI pods are orderable this month. In addition, HyperFabric, our fabric-as-a-service solution, which is expected to be available in early calendar 2025, further simplifies infrastructure deployment and management while providing real-time visibility into network performance. With these solutions, we are bringing the power of open, hyperscale AI networking to the enterprise. We also continue to fuse AI capabilities into our products. HyperShield, our first truly distributed AI-native cybersecurity solution built into the fabric of the network, shows how we are delivering secure networking, making it easier for our customers to protect against evolving threats. Splunk's Asset and Risk Intelligence solution is another example of how we are providing insights to help customers understand their security maturity and demonstrate compliance with evolving regulations. In our collaboration portfolio, we recently introduced the WebEx AI Agent, AI Agent Studio, and Cisco AI Assistant features for WebEx Contact Center. These solutions use advanced conversational intelligence and automation to improve overall customer satisfaction. We have seen strong initial interest from customers and will continue to strengthen our collaboration products, increasing AI capabilities. We are also enhancing our own productivity by using AI in our services and customer experience organization. Over 60% of our technical assistance center support cases are now touched by AI-enabled automation backed by our expertise for faster resolutions, which is leading to higher customer satisfaction scores. In addition, our internal AI assistant for TAC works alongside our engineers to improve quality and speed timed resolution, while allowing our people to work on more complex and creative problem solving. To summarize, as we look at what's occurring with AI, there are three key things happening. First, there is significant investment in back-end AI networks with hyperscalers focused on training. Second, as enterprise look to adopt and deploy AI, they need to modernize and secure their infrastructure to prepare for pervasive deployment of AI applications. Finally, the combination of mature back-end models with enterprise AI application deployment will lead to increased capacity requirements on both private and public front-end cloud networks. Cisco is already playing a major role across all three of these significant opportunities and are uniquely positioned to win with the breadth of our product portfolio and our trusted customer relationships. I will now turn it over to Scott to provide more detail on the quarter and our outlook.